Completion and the risks it poses to conveyancers

Completion is the final hurdle in a land transaction and given that the key legal ’moment’ is exchange, we might all be excused for thinking that there is not a huge amount to say about completion itself. But it is a crucial step along the way to ensuring the transaction itself is complete, it is more than a mere formality, and it still has many traps for the unwary.

What is completion exactly? In short, it is when the parties perform their prior contract for the sale of land. It is the formal process by which a buyer pays money to a seller for the purchase of property, which the seller applies to redeem any mortgages or charges and the unpaid balance of the purchase money. The seller, in return, gives vacant possession of the property to the buyer and delivers to the buyer a document of transfer to the title of the property along with certificates of discharge of any prior charges.

The exchange of contracts is significant for the liability of conveyancers because this is the point beyond which there is generally no longer ability for either party to withdraw without incurring liability for breach of duty.

However, there are additional or further steps pre-completion to verify that information received before or after exchange remains correct, the duties ultimately being to ensure good title and that mortgages or charges are discharged or executed. That process can be complicated by the fact that solicitors may act for buyer, seller, lender or a combination of all three.

A conveyancer does not necessarily need to repeat advice given prior to the exchange of contracts, because that is the point at which the client is bound.

They would be liable for failing to give advice if the advice should have been given before exchange and it would lead, for instance, to grounds to rescind.

After exchange, the duty appears to be more limited, subject to reminding a client what needs to be done where, for instance, time has become of the essence.

However, if there is an unexplained discrepancy in the information received that ought to be investigated and corrected, then a conveyancer may be in breach of duty for failing to investigate.

The Law Society, the Solicitors’ Regulation Authority and City of London Law Society produce published practice notes, protocols, formulae, codes and checklists that offer conveyancers standardisation of best practice for all but the most complex transactions.

Best practice is to follow the guidance, and to make sure that guidance is up to date. While the guides are not to be slavishly followed, they help conveyancers to avoid falling into error or omission, not least by providing a prompt that a transaction might call for further investigation or action. Conveyancers of all experience levels should have them all to hand at all times, even if only for reference. Acting in good faith in reliance on them and otherwise following common conveyancing practice and custom is not only good practice but will likely greatly assist a conveyancer facing the prospect of a professional negligence claim. Failure to adhere to warnings and recommendations contained within them, or a deliberate departure from them without justification and careful consideration of potential consequences will likely lead to a breach of duty.

That said, compliance with them is not necessarily sufficient, see for instance Cottingham v Attey Bower & Jones [2000] PNLR 557 at 573, in which the solicitors were found negligent for failing to advise as to the risks of buying a house without knowledge of whether there was building regulations consent, and if so to what.

Pre-completion searches are important to buyers and their lenders because the concept of ‘buyer beware’ applies as a default. The purpose behind any search is to verify the quality of the title. Completion ought not to take place until results of searches are received and considered satisfactory. There is a balance to be drawn between not carrying out searches too much in advance of the completion date, so that their results are no longer valid or expire, and carrying out searches in sufficient time for completion to take place on the agreed contractual completion date.

Where a seller delays completion beyond the contractual date the buyer’s conveyancer must advise the options available, including whether to enforce undertakings given by the seller’s conveyancer. This should be done promptly, given that the buyer may be entitled to damages or to rescind if a notice to complete has been served but the seller has failed to comply. Failure to advise in such circumstances will amount to a breach of duty and can amount to considerable loss if, for instance, a notice to complete would enable the buyer to re-negotiate the purchase price or otherwise have purchased the property in time to make a profit from use of it.

Where a notice to complete is to be served, conveyancers must be sure that their own client can comply with any new completion date proposed, namely by ensuring that administrative arrangements can be carried out within that deadline. See, for instance, Clarke Investments Ltd v Pacific Technologies Ltd [2013] EWCA Civ 750, in which it was emphasised that once a notice to complete is served, time is made of the essence of the contract for both parties.

After exchange the conveyancer continues to have a duty to ensure that any encumbrances that are discovered are discharged (if they are not intended to affect the property after the transaction), and no further encumbrances are registered pending completion. Conveyancers acting for lenders must take all reasonable steps therefore to ensure that the security to be given over the property being purchased is valid and enforceable, obtaining priority on the title against the property which the lender intends to obtain. The first step in this process is the searches set out above, which ought to lead to a conclusive and satisfactory report on title. The second step is the discharge of the prior charges revealed by those searches and the valid registration of the lender’s legal mortgage, amounting to an enforceable legal charge against the title to the property.

A solicitor is liable for a report on title where it is signed by an employee or where the employee allows their name to appear of the firm as an apparent partner and instructions are given by the lender in reliance on the same, see Nationwide Anglia Building Society v Lewis [1998] Ch 482. Accordingly, conveyancers are responsible for and must ensure sure that work delegated to other employees is carried out with the same skill and diligence as they would have carried it out.

Completion requires and relies on satisfactory undertakings to ensure that the intentions of the parties (and the lender) are put in to effect. Solicitors’ undertakings are personal and may be enforced directly against them. In conveyancing practice they act as a convenient assurance (and insurance) that prior charges will be discharged and that the buyer will obtain good title. Usual undertakings given include:

• Authority from the seller to receive purchase monies.
• Authority from prior charge holder(s) to receive redemption amounts and redeem charges from the proceeds of sale.
• Obligation to obtain formal discharge documentation, submitting the same for registration at the Land Registry.

This can however give rise to fraud. A seller’s conveyancer generally does not owe a duty of care to a buyer, see Gran Gelato Ltd v Richcliff (Group) Ltd [1992] Ch 560. Acting in accordance with general reasonable conveyancing practice does not exclude liability for negligence but may well go to show that what was done was reasonable in the absence of an alternative practice. In Patel v Daybells [2001] EWCA Civ 1228 the buyer’s solicitors were found not to be negligent for accepting an undertaking from the seller’s solicitors as to the discharge of a bank mortgage and then completing on the basis of that undertaking. The procedure adopted was excusable given the urgency of the particular transaction that the buyer was unable to raise funds due to its inability to sell existing property but on the day before the expiry of a notice to complete a bridging loan was obtained. The Law Society subsequently issued exceptions to this practice by way of guidance note, which must be followed.

Even though a conveyancer has not acted negligently, they may still be liable for breach of trust, breach of undertaking, or perhaps even warranty of authority over the money held. Where trust property is misapplied, the remedy is to require the trust to restore the trust fund to the position it would have been in if the trustee had performed its obligation.

The decisions in P&P Property Limited v Owen White & Catlin LLP and Dreamvar (UK) Limited v Mishcon de Reya [2018] EWCA Civ 1082 are having a great impact on both the property conveyancing market and the professional indemnity insurance market underwriting it. This is because the Court of Appeal could be said to have chosen to allocate the risk of identity fraud on professional advisers in a property transaction because they are or ought to be in a better position to afford the loss. Can it be said therefore that purchaser’s solicitors are now guaranteeing property transactions? Not quite, but the question remains whether it is fair that purchasers’ solicitors should be more exposed, given that it is vendors’ solicitors who are better placed to discover the fraud of an imposter client.

Other than reviewing terms of engagement and systems already in place to identify and cross check for red flags, there is not much at present that conveyancers can do to avoid entirely the risk of future occurrences of the likes that occurred in P&P and Dreamvar. The Law Society’s response so far has been to advise review of practice and policies in relation to the Law Society’s Code for Completion, and to ensure awareness of its own practice notes and guides.

There is nonetheless some comfort for prudent conveyancers from the decisions themselves. In both decisions quick sales should have been a red flag, and numerous other red flags were missed, for instance, international seller, referrals of ant-money laundering checks, sale at a discount, request to transfer purchase monies to a second set of solicitors. Further there was no cross checking of identity or address documentation.

Carl’s article comes on the back of the publication of Risk & Negligence in Property Transactions edited by John de Waal KC.